3rd Quarter 2012 expenditure patterns: National Treasury briefing

19 March 2013

Chairperson: Mr E Sogoni (ANC)

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Meeting Summary

The National Treasury presented the third quarter expenditure of the 2012/13 financial year, for government overall. It was noted that the adjusted appropriation for 2012/13 was R971.5 billion, with state costs amounting to R88.8 billion, the voted appropriation was R456.4 billion, and provincial equitable shares totalled R313 billion. The budget and expenditure were then broken down for the Committee, both by classification of spending categories, and for each of the quarters, and finally for each of the departments. Comparisons were also shown for the same period in the 2011/12 financial year. Most expenditure for 2012/13 was on compensation of employees, goods and services, payment of capital assets, transfers and subsidies, and payment for financial assets. The major departures, both over and underspending were detailed, with the main reasons. Those departments lagging behind in spending included Department of Cooperative Governance and Traditional Affairs, National Treasury, Basic Education, Human Settlements, Rural Development and Land Reform, and Water Affairs. The reasons were, respectively, that COGTA was asked to withhold some grants to municipalities, the fact that National Treasury had not spent on the Jobs Fund, the slower-than-expected spending on upgrading of schools infrastructure, slower spending on housing and the Urban Settlements Development Grant, and slow spending on the rural development grants, whilst Water Affairs was hampered by failure to deliver invoices for bulk service delivery. The expenditure of the Departments of Women, Children and People with Disabilities, Public Enterprises and Environmental Affairs was ahead of scheduled drawings, but National Treasury had dealt with the situation.

Overall, there was an increase in spending by the end of the third quarter, compared to the previous financial year, of 9.2% increase. The specific reasons for increased allocations and spending in this year, compared to the last, were outlined, many of which related to new or revised grants, or changes to improve service conditions for employees. The third quarter figures indicated the possibility that, by the end of the year, there could be underspending on land restitution and rural development, and school infrastructure projects (despite the increases in spending from the last year).

Members asked a number of questions around over spending and under spending, asking whether the National Treasury had a plan in place to deal with the issues. Two members stressed that land reform and restitution seemed to be an ongoing serious problem, and the National Treasury should at least put some measures in place to try and deal with it effectively. One Members called for a report back on the action that this Committee had asked National Treasury to take in relation to the Department of Women, Children and People with Disabilities, and another asked for clarity on the statistics of the Independent Police Investigative Directorate. Questions were also raised about the Department of Defence’s capital assets, whether there was personnel capacity in this Department, the reasons behind slow spending on disaster relief and more detail on equitable share grants withheld to refund the National Revenue Fund for the previous year. The Chairperson suggested that this Committee must focus on land reform, and challenges around concurrent functions, on which it might be useful to engage with the NCOP Committee. National Treasury was asked to send a full and detailed report about the Free State provincial issue raised by one Member. National Treasury may also need to pay attention to the remarks made by the Auditor-General about alignment.

Meeting report

Third Quarter Expenditure 2012/13 financial year: National Treasury briefing
The Chairperson welcomed the National Treasury, and asked how it preferred to have the Third Quarter report presented. The Committee was happy with the report, but the Committee commented that it would be useful if National Treasury (NT) could break it down, with sector officials presenting on their specific sectors. The report gave an impression that matters were on track, but the proof was in the detailed report itself. The report was a very useful benchmark, as it would give the Committee an indication as to how the NT was going to spend. He noted also that the Committee had received the third quarter spending report, but not the operational programmes, and it was necessary that the two be compared.

Mr Andrew Donaldson, Deputy Director General, National Treasury, noted that the third quarter report highlighted how expenditure would look for the whole of the 2012/13 financial year. He firstly detailed the budget for this financial year, noting that the adjusted appropriation for 2012/13 was R971.5 billion. The voted appropriation was R546.4 billion, and the provincial equitable share, state debt costs and other direct charges (mainly remuneration of judges and Members of Parliament) against the national revenue fund made up 43.8% of the national budget.

In relation to expenditure, the national government spent R396.5 billion by the end of the third quarter, which amounted to 72.6% of the total available yearly budget of R546.4 billion. The majority of the expenditure was under transfers and subsidies, compensation of employees, goods and services and payments for capital assets. The planned and actual expenditures were summarised (see attached document for details). There had been flow of funds to municipalities. National Treasury had some areas of lag in spending.

Mr Donaldson then highlighted budget and expenditure by different government departments, noting that some departments, such as Department of Women, Children and People with Disabilities, and Department of Environmental Affairs had overspent, while other departments had lower spending. Overspending was highlighted in red, and lower spending was highlighted in yellow (see attached document for more detail). Failure to spend at municipal level had resulted in the holding back of grants. The Department of Basic Education had lagged in spending due to backlogs in school infrastructure, and Department of Human Settlement had lagged in spending due to housing problems.

Mr Donaldson summarised the departments showing the greatest departures from the projected expenditure. The Department of Cooperative Governance & Traditional Affairs underspending was due to equitable share grants being withheld, to refund the National Revenue Fund for unspent conditional grants not relinquished by municipalities in previous financial years. It also showed slow spending in the disaster relief grants. National Treasury had lagged behind, because it had been slower than projected in spending on civil and military pensions for post-retirement medical benefits and payments to the non-statutory forces (NSF), as well as delays in spending on the Jobs Fund. The Department of Basic Education was lagging behind because of delays in the Accelerated School Infrastructure Delivery Initiative (ASIDI) grant. Department of Human Settlements Department lagged because the payment schedule for the Urban Settlements Development Grant (USDG) was slower than the Department had anticipated. The slow pace of expenditure was, however, expected to be rectified by year end. The Department of Rural Development and Land Reform (DRDLR) showed slow spending on the Restitution and Land Reform grants, due to lengthy legal and planning processes. Department of Water Affairs lagged behind, due to late submission of invoices for work done on bulk water distribution projects, together with delays in the purchase of machinery and equipment, including water pipes or water service projects.

Mr Donaldson said that there were also instances of expenditure ahead of scheduled drawings. For instance, the Department of Women, Children and People with Disabilities (DWCPD) had higher costs associated with the appointments made within the Department over the last two financial years. Additional funding was provided in the Annual Estimates of National Expenditure (AENE) to help reduce that issue. The Department of Public Enterprises had early payment of deed of settlement obligations to Alexkor Ltd, and payment was made. Department of Environmental Affairs had a once-off payment for VAT on the new polar vessel (SA Agulhas II), together with increased spending under Expanded Public Works Programmes (EPWP) and Working with Water programmes, to catch up with backlogs from the previous financial year.

Mr Donaldson indicated the breakdown of spending, by budget votes. The Department of Social Development had the highest, because the majority of its spending related to social grants. The Department of Police (Vote 25) and Cooperative Governance & Traditional Affairs (Vote 3) had large expenditure, respectively, on wages for police services and the Local Government Equitable Share. Other government departments, which were illustrated separately, made up 80% of the total spending in the third quarter (see attached document for more details).

Mr Donaldson noted that when the spending was compared with the previous financial year, there was an increase of spending. Compared to the national government spending for the same period in 2011/12, government showed a nominal increase of R33.5 billion spending (9.2% increase), spending in total R396.5 billion by the end of the third quarter of 2012/13.

He then outlined the comparative spending for some of the departments.

The Department of Cooperative Governance & Traditional Affairs had spent R38.7 billion by the end of the third quarter, on transfers for the Local Government Equitable Share and the Municipal Infrastructure Grant, a nominal increase of R7.1 billion when compared with the previous year. This was largely to allow for higher spending by municipalities on infrastructure and the expansion of free basic services.

The Department of Transport had spent R28.6 billion by the end of the third quarter, primarily for transfers for transport infrastructure maintenance, construction and operation, a nominal increase of R2.1 billion compared to spending in 2011/12. This increase was mainly on road transport and public transport projects, as well as payments for Passenger Rail Agency (PRASA) and the Road Agency.

The Department of Social Development had spent R83.4 billion, by the end of the third quarter, on Social Grant transfers, a nominal increase of R5.3 billion compared to spending in the previous year. This increase in spending resulted from the increase in the number of beneficiaries.

The Department of Police had spent R46.5 billion by the end of third quarter on salaries, equipment for public services, and improvements for capital assets.

The Department of Defence and Military Veterans spent R25.8 billion by the end of the third quarter on salaries, and on equipment for military services, a nominal increase compared to the previous year. The other spending was on acquisitions and upgrading of weapons systems and technology as the Strategic Defence Procurement Programme reached its final stages.

The Department of Higher Education & Training spent R29.5 billion by the end of the third quarter on transfers to Higher Education Institutions, a nominal increase of R2.9 billion when compared to the previous year. This was mainly because transfers to the Higher Education Institutes were increased to allow for increased enrolment and graduations at Universities. A brief comparison to the previous financial year was highlighted, showing that 71.6% of the increased expenditure was under transfers and subsidies, 20.2% of increased expenditure fell under Compensation of Employees, and 5.5% under Payments for Capital Assets. The expenditure increased over R1 billion between third quarter 2011/12 and 2012/13.

The Department of Health had spent R21.1 billion by the end of third quarter, representing a nominal increase of R1.3 billion or 6.8%, when compared to the end of the third quarter 2011/12. The majority of the increase fell under the Comprehensive HIV/AIDS grant.

The Department of Basic Education had spent R11.1 billion by the end of third quarter, representing a nominal increase of R1.9 billion or 20.5% in comparison to the previous year. The majority of the increase fell under the School Infrastructure, and School Infrastructure Backlogs grants.

The Department of Correctional Services had spent R12.5 billion by the end of the third quarter, representing a nominal increase of R1.0 billion or 8.9%, by comparison with the previous year. Most of this fell under Compensation of Employees, to cover improvements in conditions of service.

Mr Donaldson said that the Third Quarter National Expenditure indicated that under spending was possible on land restitution and rural development, and school infrastructure projects (although expenditure on schools infrastructure had grown significantly when compared to the same period last year). Overall, the National Government expenditure had increased by R33.5 billion or 9.2% when compared to the same period last year. He reiterated that significant drivers had included an increase to the Local Government Equitable Share, increased Social Grant payments, improved conditions of services for the police and military, higher university subsidies, and increased spending on transport and school infrastructure projects.

Discussion
Mr G Snell (ANC) asked why the National Treasury found it is so difficult to use MTF.

Mr M Swart (DA) wanted clarity on current budget of Social Development.

Mr Gelderblom wanted details of the underspending on land restitution, and asked if National Treasury had done something to address the issue of land restitution.

Ms A Mfulo (ANC) wanted clarity on departments that showed under spending and those overspending, and on the Department of Defence’s capital assets. She asked if there was lack of capacity and asked if the National Treasury had a plan in place to deal with both the under and overspending.

Ms R Mashigo (ANC) noted that the Committee had previously asked the National Treasury to intervene in the Department of Women, Children and People with disabilities, and asked what had been done in that instance. She asked also what impact any interventions had shown.

Mr L Ramatlakane (COPE) wanted clarity on slow spending in the disaster relief grants, and on spending that was higher than the previous financial year. He wanted more discussion on the “savings” on social development aspect, and on water affairs, land reform and restitution. He was pleased to note the improvement on school infrastructure.

The Chairperson noted that small local municipalities struggled to generate their own revenue. He asked for more clarity on the Department of Cooperative Governance and Traditional Affairs, specifically on the equitable share grants withheld to refund the National Revenue Fund for unspent conditional grants not relinquished by municipalities in the previous financial year. He also requested more detail on the slow spending in the Disaster Relief grants.

Mr Donaldson replied that R350 million had been transferred to ELESCO, and this was classified as capital assets. In relation to the Department of Defence, he explained that it had its own procurement system which was located in Armscor, with its own financial management system, and it was hoped that there would be some improvement in financial management of the Department of Defence. The National Treasury did not manage the finances of this Department. Spending by the Department of Defence was not classified as capital assets. There would also be improvements in understanding the personnel spending.

In relation to the questions about the Department of Rural Development and Land Reform, he noted that he could not provide detailed information. Land reform had been a complex process that involved dealing with large community claims, returning people to their land, legal processes and other administrative actions. The Committee had to be aware of cost implications of land claims courts and other matters related to land restitution.

Mr Donaldson said that in relation to the slow spending on disaster relief, there would always have to be a balance between immediate relief and long term improvement of infrastructures. However, before infrastructure could be replaced, a full examination had to be made of the damage, and what was needed, before budgeting.

He noted that the Department of Water Affairs had always been problematic, due to technical problems that delayed projects. With large projects such as building of dams, there had to be designs in place and other technicalities must be attended to, with the result that these projects invariably experienced delays.

In relation to the Department of Cooperative Governance and Traditional Affairs and local municipalities, Mr Donaldson explained that political interference and problems, and delays in decision making affected the progress, particularly in local municipalities. At the moment, there was not much detailed information about COGTA and municipalities that could be shared with the Committee, but the information would be made available in due course. The Committee also needed to take note that the changes in management had delayed some projects in getting off the ground. However, in most government programmes, there had been some progress.

Mr Donaldson said that National Treasury planned a review of expenditure on personnel, but this was an area of ongoing work.

Mr Donaldson stressed that although National Treasury set policy, it was not responsible for delivery of services to women, children and people with disabilities. However, National Treasury had made some additional allocations to the relevant Department.

Ms Mfulo said that when the questions were asked, she had been referring to the policies of National Treasury , not other activities that government departments had to do.

In concluding, the Chairperson suggested that it would be good for the Committee to look at the issue of land reform as it was a very important issue. Something had to be done to fast-track the process of land reform and restitution. He requested the National Treasury to send a full and detailed report about Free State provincial issue that Mr Ramatlakane raised.

The Chairperson also mentioned the challenges of concurrent functions. In particular, the Department of Health showed challenges at the provincial level. The Committee perhaps needed to engage with the NCOP as to how best to deal with some challenges.

The Chairperson also noted that the Committee had received the report from Auditor-General South Africa (AGSA) about alignment and suggested that there had to be some monitoring from the National Treasury, although that report did show that there had been improvements.